Exchange: Tech-Deal Surge to Stay

This year has been a banner year for mergers and acquisitions in the technology industry. From Intel Corp.’s $7.68 billion acquisition of antivirus software maker McAfee Inc. to Hewlett-Packard Co.’s $1.15 billion acquisition of handset maker Palm Inc., deals in the tech space have been rising as global economies started to recover and technology spending picked up.

Citigroup

According to data tracker Dealogic, M&A volume for the technology sector totaled $142.9 billion from 5,329 deals so far this year. That compares with $150 billion from 4,673 deals in 2009. So what’s the outlook for next year? Will the technology sector continue to drive M&A activity? The Wall Street Journal spoke with Nikhil Eapen, Citigroup’s managing director and head of technology, media and telecommunications global banking for Asia-Pacific, to get his views.

WSJ: What have been the key factors driving M&A activity in the technology space?

Mr. Eapen: The primary trend that has and will continue to drive large cap tech M&A is cloud computing and the rise of software as a service. This will drive consolidation across technology subsectors as tech companies seek to assemble the right combination of services and infrastructure to provide the evolving solutions required by enterprises.

WSJ: What’s the outlook for M&A activity in the tech space next year? Will it be as robust as 2010?

Mr. Eapen : We certainly expect tech M&A to be robust with continued horizontal consolidation across hardware, semiconductors and the display space and continued diversification-driven mergers and acquisitions across semiconductors and solar industries. Trends such as cloud computing, tablet computing etc. will continue to be key drivers as every large cap tech company re-examines its strategy.

WSJ: Why is the semiconductor industry of particular interest? Are we likely to see more deals involving Asian companies?

Mr. Eapen: Consolidation in the semiconductor sector is not new…and is a consequence of capital spending and cyclicality. What is new is an imperative to add new revenue streams that leverage core technology better such as solar.

WSJ: So will solar be a key driver for future M&A activity in the semiconductor space?

Mr. Eapen: We do expect M&A activity in the solar space, both in terms of consolidation amongst solar companies as well as large-cap technology and semiconductor companies looking at diversification for growth.

WSJ: What about deals in the telecommunications space?

Mr. Eapen: Telecom M&A is likely to be equally robust. Competition has been intense and consolidation is inevitable across a number of markets. India, being the big one, although more regulatory clarity around spectrum and M&A rules are needed. Cross-border M&A–inbound, or outbound–will be opportunistic, but we see opportunistic situations now than ever before given competition versus leverage arising raising levels of financial stress, although very selectively. The ‘tower wave’ will continue, largely focused on consolidation as tower operators focus on building scale and footprint and driving utilization. But we also expect stake sales and monetization as the valuation environment improves with the growth premise remaining strong.

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